Shai doesn’t worry about whether the overall market is overvalued, but instead he focuses on individual companies. He also recommends that you create a shopping list of companies that you would like to own. That way when the market offers up a “limited-time-only clearance sale” you are ready to act. I couldn’t agree with Shai more on this point.

However, I do monitor the overall value of the market for two key purposes. First, I track the overall value of the market to determine whether I’m likely to find lots of bargain stocks or whether I’m going to have to work really hard to find a hidden gem of an opportunity. When the market is really overvalued, I take that opportunity to ease up on my research efforts and instead focus on my current holding to determine if I need to sell any of them. Second, I monitor the overall market value of the major indexes to help me make decisions on my retirement account contributions, which are limited to index fund options. If you are in a similar situation with your employee retirement account or utilize index funds in another account, I recommend that you look at the work of Ben Stein and Phil DeMuth at Yes, You Can Time the Market.